What you need to know about Rentcharges

A rentcharge is a type of legal interest in land. The owner of a rentcharge is entitled to collect a rent from the owner of the land affected by it and will usually have a “right of re-entry” if the rent is not paid. In addition to the obligation to pay rent there will generally be other covenants which, if breached, give rise to the right of re-entry. Rentcharges, like mortgages, can be bought and sold.

Rentcharges were often created by owners of large estates who would sell a property on the estate to one of their staff, for example they might have sold a cottage to a gamekeeper, for a reduced price in exchange for the annual rent payment. The Rentcharges Act 1977 banned the creation of new rentcharges but did not affect existing ones, of which there are therefore still many.

How Do I Spot a Rentcharge?

The rentcharge will usually show up in the Charges Register of the Official Copies. If so there will be an entry along the lines of “the land in this title [together with other land] is subject to a perpetual yearly rentcharge in the sum of [amount of annual charge]”. Most rentcharges were created before decimalisation and the amount will therefore be given in the Imperial format, i.e. £1 5s 2d. ‘S’ is for shilling and is equal to 5 new pence and ‘d’ is for penny and is equal to 1 new pence, so this particular charge would be £1.27.

The entry detailing the charge may be followed by an entry such as “Note: by a deed dated [date] between [parties] the land in this title was exonerated from the rentcharge”. If this is the case then the charge is no payable, though any other covenants contained in the deed creating the rentcharge. There will often also be an entry along the lines of “by a deed dated [date] between [parties] the rentcharge was informally apportioned in the sum of [lesser amount than original charge] as to the land in this title. This will happen where the land in respect of which the rentcharge was originally created has since been split into smaller plots and in this case the lesser amount is payable.

Other Covenants Arising Out of a Rentcharge

As well as the covenant to pay the rent itself the deed creating the rentcharge will usually contain a number of other covenants, both restrictive and positive. These may include an obligation to serve notice on the rentcharge owner when the property changes or to obtain consent before carrying out any alterations. It is for the sake of the fees that can be charged in connection these matters that companies often purchase portfolios of rentcharges.

Failure to Comply With Covenants Under a Rentcharge

When a rentcharge is created it gives rise to a right of entry in favour of the rentcharge owner, just as landlord has under a lease, and failure to comply with the covenants (including but not limited to the covenant to pay the charge) may render the right enforceable. A court order for possession would need to be obtained followed by, if the occupier refused to vacate, a warrant for eviction. Any action by the rentcharge owner could be stopped by the owner remedying the breach and any action by the rentcharge owner which frustrated any attempted remedy should render the right of re-entry unenforceable.

What is the Right of Re-Entry?

The right of re-entry is the term used to describe the right of a rentcharge owner, or indeed a landlord, to take possession of a property (and in the case of a lease, to bring the term to an immediate end) in the event that the rent is unpaid or that other covenants are breached. If the right is exercised the rentcharge owner becomes entitled to the property in place of the owner. They may evict the owner (though a warrant for eviction will be required) and may retain or dispose of the property as they wish. Although relief can sometimes be obtained if the owner is willing and able to remedy the breach it is by no means guaranteed to be granted.

Obtaining Information From the Rentcharge Owner

Enquiries should be raised with the rentcharge owner before purchasing a property subject to a rentcharge to ensure that payments are up to date and that there are no subsisting breaches of any other covenants and also to establish what fee is payable, if any, for dealing with the notice of transfer.

The details of the original rentcharge owner will be given in the deed which created it however the deed will necessarily be at least 33 years old (remember that no new rentcharges could be created post 1977) and often much therefore it is likely that he will no longer be at the address stated in the deed and he may well be deceased. It is possible to register a rentcharge with its own title number and if registered the title number should be given in the Charges Register of the property title. Alternatively an index map search may reveal the title number. If so contact details can be taken from the register of the rentcharge title.

What Happens if the Rentcharge Owner Cannot be Contacted?

It is very often the case that a rentcharge owner cannot readily be contacted. This might happen where the rentcharge was never registered and is the rent is not currently collected. If this is case then the only information available is likely to be a name and address from the deed which created the rentcharge and it is likely the owner will have long since moved on.

In these circumstances a purchaser should generally be satisfied with an allowance of 6 years’ rent. Under the Limitation Act 1982 this is the maximum amount of arrears the rentcharge owner can claim if he does appear back on the scene. If any of the other covenants have been breached and the breach is ongoing (an extension built without consent for example) then a breach of covenant indemnity insurance policy may also be necessary.

Can I Have the Rentcharge Removed?

It is possible to have the rentcharge released, though only with the owner’s consent, as they will have to sign a deed of release. This will then need to be registered so that anyone who buys the rentcharge in future is on notice of it having been released in respect of your property.

Trading Rentcharges

A rentcharge can be bought and sold just like a property can. Although the rent which is payable is unlikely to be sufficient to justify a purchase, the fees which can be charged to the owners of properties which are subject to the charge can be quite rewarding.

Typically for example, a rentcharge owner who is clued up might charge £50 for acknowledging a notice of transfer, £25 for providing a rent receipt and £75 for answering enquiries in connection with a sale. If a property changes hands on average once every 5 years that’s £30 per year. This doesn’t sound much on its own but buy 1000 rentcharges and that’s £30,000 per year! In addition higher charges can often be made for granting retrospective consents to alterations or to lettings, or anything else that under a covenant requires the rentcharge owner’s consent.

Depending on the number of rentcharges owned this is something that could be done by a person in his spare time, with the outlay after the initial purchase price being some stationery and stamps (though in fact many companies provide information by e-mail these days so even that expense is eliminated).

Estate Rentcharges

Estate rentcharges are not the same as rentcharges. In fact the name is a little misleading, they are really estate maintenance charges and occur where there is some private facility, such as a park, a green or a septic tank, which benefits a number of properties on an estate and for which they are jointly responsible. There is no right of re-entry in respect of these charges and they are not legal interests in land (as defined by the Law of Property Act 1925). They are merely a positive covenant to pay the charge and each new owner must enter into a direct covenant in order to be bound.

You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

AddThis Social Bookmark Button

Comments are closed.